Hoosier State Embraces Hog Growth

Government officials in Indiana have said they want more pigs produced and fed out in the state and several large hog production companies have accepted the challenge. After decades of decline, Indiana's farming economy is on the verge of an upswing, fueled by seven initiatives designed to boost employment and revenue. Those initiatives, developed by Indiana Gov. Mitch Daniels and his staff, range

Government officials in Indiana have said they want more pigs produced and fed out in the state — and several large hog production companies have accepted the challenge.

After decades of decline, Indiana's farming economy is on the verge of an upswing, fueled by seven initiatives designed to boost employment and revenue.

Those initiatives, developed by Indiana Gov. Mitch Daniels and his staff, range from forestry and bioenergy to improving food processing and diversity of production, to more involvement in federal farm and trade policy and doubling hog production.

Of those seven, bioenergy holds great promise. Ground has been broken on six ethanol plants, and another 4-6 plants will be built in the following year that will consume up to 35% of the state's annual corn crop.

The charge to double pork production in the nation's fifth-largest hog state is of special interest to Andy Miller, director of the state's new Department of Agriculture.

Miller, who was raised on a small farrow-to-finish hog operation near Waterloo in northeastern Indiana, worked for several years in the food-processing industry after achieving an agricultural economics degree from Purdue University.

“Indiana is a state that has been struggling,” he says. “It has traditionally been strongly aligned with the automobile industry.”

The decline of that industry and others has dampened the business climate and created a revenue shortfall, leaving the state virtually bankrupt, Miller reveals. “Indiana had slipped into the bottom tier of states for nearly every major economic category,” he says. “But Indiana has so many other natural assets, that as our governor campaigned, we can and should aim higher.”

Reaching for Recovery

Reviving a slumping hog industry is a key part of the expected resurgence. From 1980 to 2004, the number of hog farms took a nosedive, declining from 24,000 to 3,200. Much of the reduction can be traced to consolidation seen across the hog industry, comments Miller.

The state still boasts a robust hog industry. In 2004, hog returns accounted for 36% of total livestock receipts and 12% of total farm cash receipts of $738 million.

“Still, we found ourselves in a situation where hog production was down and about 50% of our corn was leaving the state with hardly any value added to it,” he explains. “We decided we couldn't continue to flounder and lose ground. We had to regain our footing.”

Miller lists three natural advantages that make Indiana a perfect place for livestock production:

Despite its losses, it still retains a lot of hog production and a lot of producers who know how to raise pigs;

Indiana is the crossroads of America. “This is a great place with the right agronomic inputs, and the right transportation infrastructure to do the producing;” and

The state has a great hog packing and processing industry that continues to grow. The three main plants include the Indiana Packers Corp. facility at Delphi, IN; the Tyson Foods plant at Logansport, IN; and the Swift plant at Louisville, KY, which fills the majority of its kill with hogs from Indiana and Ohio.

Those three packers purchase an estimated 30-40% of their hogs out of state. Miller responds: “We see no reason why those hogs can't be grown here. Our first line of defense is to hopefully get our own producers to expand and grow. Having said that, we are intrigued by out-of-state producers who want to come here and start operations and partner with existing producers.”

He adds: “The reason Indiana is so primed for this growth in livestock production is because it's possible to reach 67% of the U.S. population within 24 hours from Indiana, so what better place to build a perishable food business?”

Activities to Spur Growth

To help local communities embrace livestock production and to facilitate siting, the state government has begun the Economic Development Initiative, explains Miller. Staff help county officials strategize how agriculture fits into their local economies, he stresses.

At the same time, state officials are publicly espousing the values and economic impact of livestock production.

“We want them to know that we are committed and stand ready to help them, and most importantly, to let them know that we have very high standards as to the kind of producers we want. We want good-quality producers who are going to be good to their communities and environment, and have a long-term relationship with our state,” Miller stresses.

The agriculture director also offers his department's assistance in expediting the permitting process, which is carried out by the Indiana Department of Environmental Management (IDEM).

In addition, a comprehensive bill to pay for county and state roadways for the next 10 years was recently passed.

Atmosphere of Cooperation

The state agriculture department's willingness to work with producers has been a key reason why large swine production companies are expanding into Indiana.

Coharie Farms, a farrow-to-finish production company based in Clinton, NC; and

Hatfield Quality Meats, a hog production and packing company based in Harrisburg, PA, and Hatfield, PA, respectively.

Most of the hog production growth is concentrated in Randolph and Wayne counties in east central Indiana.

IDEM Commissioner Thomas Easterly stresses the charge of his agency is to protect human health and the environment, and not to promote any business interests.

But he makes it clear where he stands on hog growth. “Some people from other states, including North Carolina, are proposing hog projects in Indiana. We think that is a good thing.”

And IDEM is backing up that support with an expedited permitting process, adds Dennis Lasiter, technical environmental specialist. The pace of approvals has almost doubled. Last year, 25 permits were issued for confined animal feeding operations (CAFOs), plus a number of modifications approved for existing operations. In the first quarter of 2006, IDEM has approved 19 CAFO permits, 11 of which were for new farms, says Lasiter. All were approved for hog farms.

“We know there are a lot of projects that are still in the paper process, but haven't yet come in for application,” says Easterly. Companies are assembling tracts of land, getting approval from local officials and talking to neighbors about their proposed projects.

Indiana's CAFO rules were adopted in 1971. During the first 15 years, over 4,000 farms participated in the program. That number has shrunk to 2,400 farms, says Lasiter.

IDEM's regulatory authority is protecting water quality; the state has no jurisdiction over odor and air quality.

The state has some water quality issues, which are in the process of being corrected, admits Easterly. But the deficiencies can be traced to sewage treatment systems in municipalities across the state, including Indianapolis, and not to impaired watersheds from livestock operations.

Permitting Process Improves

IDEM was extremely cautious when Natural Pork Production (NPP) proposed to take over a closed hog operation in 2003, says Mark Zaccone, manager of hog businesses for NPPII, which operates farrow-to-wean operations in Iowa, Minnesota, Indiana, Ohio and Texas.

The approval process took longer than expected, but IDEM had every reason to proceed cautiously, he says. NPP took over the defunct Pohlman Hog Farms at Crawfordsville, IN, which had its license to farm revoked by the state due to a number of environmental infractions.

The hog operation sat empty for about nine months, including three months when significant repairs and renovations were made. It was converted from a 3,000-sow, farrow-to-finish operation to a 9,800-sow, farrow-to-wean system with an off-site gilt developer.

During that changeover, NPP officials mounted a major public relations campaign, says Zaccone. A philosophy that had its roots back in Iowa, NPP met with the press, neighbors and local officials.

“We had some neighbors who really didn't want to have anything to do with us at all, and were very adamant about it,” recalls Mike Davis, new NPP farm manager.

But NPP's efforts quickly turned things around. “They were pleased to see a change and someone to keep the operation running,” he notes.

One major obstacle was Friends of Sugar Creek, a local citizen's environmental group that had a big hand in closing down the previous owner. Zaccone says NPP took a strong stance with the group, meeting with them and buying testing equipment so they could check nearby Sugar Creek for runoff and pollution. NPP got a clean bill of health and the group has not contacted NPP since.

Manure application has definitely changed at the farm, says Davis. Manure is flushed out to a pump-out station that also features several manure-holding tanks. From there it flows to a lagoon and out through an underground pipeline that spans the 2,080 acres that NPPII leases, fitted with outlets for a drag hose system. Flow meters have been added to the drag hose system to monitor any change in pressure, which could signal a leak.

Four contractors with Neier Waste Control, Amo, IN, monitor the annual manure application process. One employee observes the concrete-lined lagoon, one monitors the drag-line system, one is posted at the pump-out station and the other drives the tractor pulling the drag hoses. The farm produces 13-15 million gallons of manure annually.

Last fall, for the first time in 20 years, area neighbors, possibly feeling the pinch of rising fertilizer and energy costs, took some of the farm's manure.

Zaccone says NPP has recently received approval for two other building and use permits in Indiana. One is for a 11,200-sow, farrow-to-wean production site in Wayne County near Richmond on the Ohio border. The second permit, at Colfax, IN, 20 minutes north of the Crawfordsville site, is for converting a 13,000-head finishing site to a 4,800-sow, farrow-to-wean system. Plans are to have both systems in operation by next summer.

In making the applications, Zaccone noticed a positive change with the new state government in the past year. “The governor and his staff have been very supportive of the hog industry. They are practicing what they preach, and we applaud that and are thankful we are getting that type of support.”

Zaccone says the permitting process seems to be running smoother at IDEM. The agency is approving permits in an average of 40 days.

Supporting the Pork Initiative

David Hardin of Avon, IN, is president of the Indiana Pork Advocacy Coalition, a voluntary group of 160 producers who are funded through the National Pork Producers Council Strategic Investment Program, which focuses on regulatory and legislative affairs impacting the pork industry.

Hardin returned to the family's 600-sow, two-site, farrow-to-finish hog operation just three years ago, after working in financial recordkeeping with United Feeds (now JBS United) and with R.J. O'Brien at the Chicago Board of Trade.

He wants to stay on the farm and see it grow, and views the state's Doubling Pork Initiative as one way to secure his future.

“We in the coalition saw some advantages to what the governor was proposing, because we felt it created an environment that allowed us to do business and raise quality pork,” says Hardin.

But he says some widely held misconceptions still exist about the initiative. The doubling pork process is to take place over about 20 years (2025), not in five years, as some have stated.

The state lost about a third of what it produced in the early 1980s, and the goal is to get production back to those levels, states Hardin.

The coalition is working with state officials to help implement the initiative and foster research on technology to help mitigate odors and prevent overloading of phosphorus in the soils.

Hardin encourages grain farmers to support the livestock initiative in their communities, and realize that one of the best end uses for their crops is through livestock feeding.

Ethanol Use Concerns

Hardin and other Hoosiers have expressed concerns that the state's planned buildup of ethanol production will dilute the availability of corn for livestock feed.

“Your feedstock for ethanol and your feedstock for hogs is the same thing — corn,” says Hardin. “We need to make sure we have a good policy of how renewable fuels will work with livestock production, so we don't compete too much for the same product.”

Agriculture Director Miller says he does not share the concern being voiced around the state that growth in livestock will result in running out of corn.

“The last thing we should be worrying about is running out of corn,” he says. The country is sitting on huge carryover supplies of corn, and biotechnology is expected to cause corn production to mushroom in a few years.

“The latest prediction is that we will see average corn yields in this state go from 145 bu./acre to 170 by the year 2010,” he says.

Finally, Miller reiterates that Indiana is shipping 50% of its corn production out of state. “I'd say let's keep it here,” he says, to raise livestock locally.

Packer Keeping it Home

Indiana Packers Corp. (IPC) believes in keeping it local. Despite the dramatic drop in the state's hog production, the Delphi, IN-based, Japanese-owned plant buys 70-80% of its hogs from Indiana and Ohio.

“Indiana Packers has defined its procurement trade area of support to the eastern Corn Belt,” explains Dave Murray, vice president of livestock procurement. “In general, we do not solicit hogs west of the Mississippi, nor do we solicit from the Southeast or from Canada.”

IPC's slaughter capacity is 14,000 head/day, says Ed Nelson, company president. Current building expansion will bring that up to 16,000 head/day by the end of 2007 at the double-shift plant. Boning and packaging capabilities are also being enhanced.

Nelson says IPC supports the Doubling Pork Initiative, but stresses IPC's expansion is in direct response to growing domestic and export demand for the Indiana Kitchen line of processed pork products.

The expansion will increase the workforce from 1,500 to 1,800, and enable IPC to further pursue niche pork markets, envisioned as one area of potential growth for Indiana's smaller pork producers.

“We go after companies that require something special, something that is a little out of the mainstream,” says Nelson.

IPC is a good fit for Indiana's burgeoning hog industry, and is a good neighbor in the community. “We work very hard to keep the plant environment as neat and clean as possible,” emphasizes Nelson. IPC just received an award from the American Meat Institute and the National Safety Council for being one of the safest meat packing plants in the country.

Farmer-Owned Lender in Middle of Hog Boom

The Muncie office of Farm Credit Services of Mid-America is well positioned for Indiana's emerging boom in hog production.

Much of the expected growth is centered in the east central counties serviced by two financial services officers at the Muncie location.

Mike Reed covers the counties of Delaware, Randolph and Jay, while Randall Coffman handles the counties of Henry, Wayne and Union.

Large hog integrators that are setting up sow units in the area will be financed through their own lending institutions. But many of those integrators are banking on local contract growers to seek out their own funding sources for land and/or building loans.

“We certainly see livestock as a critical component of agriculture, and we are very well-positioned with underwriting programs including the use of financial guarantees, to extend a wide offering to support producers who want to become part of the livestock industry,” he says.

The growth of the integrator component offers a more stable opportunity for contract growers because they don't have the production and market risks typical of livestock production, says Garrison.

Contract production will give many young Hoosiers the chance to return to the farm, explains Reed. To facilitate that, Farm Credit in many cases has extended the terms on these types of loans by two years, from 10 to 12 years.

A recent change has also reduced the level of equity needed by these young farmers to secure loans, based on the financial strength of some of these integrators, Reed continues.

“A common scenario is if Dad is willing to deed off a portion of land for the son to be able to have these facilities, then we can meet loan standards to that young farmer, and in return, Dad gets the manure. With the increasing cost of fertilizer, that gets Dad interested, too,” says Reed.

Reed says while building costs are indeed up over two years ago, builders are buying components in volume that are keeping the increases down to about 10-15%. With the improved structural quality of buildings, plus updating and maintenance, they will last about 20 years, reports Garrison.

Farm Credit loans have two other positive features, says Reed. First, loans are set at fixed rates that are locked in. Second, after a loan is finalized, if prime loan rates decline next year, Farm Credit will convert farmers to the lower rate without going through the hassle and expense of refinancing.

“Because we are very highly capitalized, we have been able to offer that plan so that essentially our fixed rate becomes a capped rate, and if a person wants to convert to the lower rate, they can,” says Reed.

Loan rates on the contract hog barns in east central Indiana have been running under 7%. The average-sized loan for a standard, 4,000-head set of wean-to-finish buildings, if you finance 100% of the cost, is running $725,000-$750,000, says Reed.

Producer Experience

Terry and Sherri Finnerty teamed up with Jeff and sister Jill Knisely to put up two, 4,000-head wean-to-finish barns at Dunkirk, IN, for Coharie Farms of North Carolina.

Their basic contract is for seven years. The couples are paid on a per-pig space. In turn, they provide all the daily care and housing for the pigs, while the owners provide feed and veterinary care and marketing.

The couples weren't raised on the farm and also purchased a tract of land for the barns. They feel the contract is fair and they are happy to have a job that provides flexibility and helps maintain their rural lifestyle.

Production, Economics in Indiana

Indiana's hog inventory has declined 32% from 4.6 million head in 1980 to 3.2 million in 2004, but the number of hogs marketed has barely changed during a similar period, from 6.8 million head in 1980 to 6.7 million head in 2003, according to a study from Purdue University (www.inpork.org).

Indiana's hog inventory as a share of the U.S. inventory increased between 1980 and 1991 from 7% to 8%, but fell back to 5% by 2004.

Indiana's pig crop declined 32% between 1994 and 2004, equivalent to a loss of 2.3 million hogs since 1994, says Chris Hurt, Purdue University agricultural economist.

During the same time, there was an increase in pigs brought into the state for finishing, says Hurt. Those numbers were up 1.3 million, so when you take both of those two factors into account, the state's decline in production was about 12% for the overall number of pigs that were born and finished in the state, he notes.

By size, in 2004, 87% of all Indiana hog operations had fewer than 2,000 head; farms with 2,500 head represented 10% of all operations and 3% of operations had more than 5,000 head.

The Purdue study shows hog production is a statewide industry, but has been concentrated in the north central counties of Carroll, Clinton, Decatur and Montgomery, which ranked in the top 100 hog-producing counties nationwide in the 2002 U.S. Census of Agriculture.

Hog receipts represent 12% of the state's total cash farm receipts.

That translates into an estimated $44 million of personal income and $3 billion in gross state product and jobs for more than 13,000 people.

At A Glance…

The pork industry in Indiana employs more than 13,000 people.

The pork industry in Indiana generates an estimated $44 million of personal income and $3 billion in gross state product.

Hog receipts represent 12% of the state's total cash farm receipts.

Indiana had 3,200 hog farms with 3.2 million hogs and pigs in inventory in 2004.